The Canada Revenue Agency will likely tax Canadian medalists on cash awards they receive from the Canadian Olympic Committee for their achievements at the 2014 Winter Olympics in Sochi, Russia, Toronto tax lawyer William Innes says.

It’s a controversial view, especially since Mr. Innes firmly believes the CRA’s position is flawed.

The COC’s Athlete Excellence Fund provides Canadian athletes with prizes of $20,000 for a gold medal, $15,000 for silver, and $10,000 for bronze. In the case of team sports, each team member receives a cash award.

Since the 2008 summer games, the COC has awarded about $2.9-million to medalists, with individual awards averaging just short of $16,000.

Related

In June 2009, an opinion letter from the Canada Revenue Agency took the position that the cash awards paid by the Canadian Olympic Committee to the medal winners were “not awarded in recognition of service to the public,” even though the Minister of Revenue acknowledged that winning an Olympic medal could “indirectly” promote a sense of nationalism.

Since 1986, when the taxability of John Polányi’s Nobel Prize in chemistry became a political liability for the federal government, the Income Tax Act has wholly exempted “prescribed prizes.” It is not known exactly how many prescribed prizes CRA recognizes, but they likely number in the hundreds taking into account prizes at all levels of government in Canada and by various private institutions.

“Governor General’s awards for literature and for visual and performing arts are, for example, tax exempt,” explains Mr. Innes, who is counsel to Reuter Scargill Bennett LLP of Toronto. “The tax cost of exempting awards to Olympic medalists is roughly 65% of the tax cost of the exemptions to Governor General’s awards winners.”

But because their prizes are not awarded for meritorious achievement in the arts and sciences, Olympians would have to demonstrate that they reflected achievement “in service to the public” — which the government apparently still maintains is not the case.

For his part, Mr. Innes insists that the government’s position is wrong and has been internally inconsistent from the outset.

“The Minister of Revenue has expressly disclaimed the right to tax the value of the medals themselves,” Mr. Innes say. “There is no principled, legal reason for not doing so while taxing the COC awards at the same time — it just avoids a public lynching by outraged Canadians.”

According to Mr. Innes, the government’s position would not survive a court challenge.

“A judge would have to determine the public’s opinion of Olympic medals, not the view of some functionary with CRA,” Mr. Innes says.

Perhaps the most telling evidence that the Olympic movement provides a public service is that it receives funding from all levels of government. Indeed, governments provided $4.8-billion in funding for the 2010 Vancouver Olympics. The federal government also provides $62-million in annual funding to the Own the Podium program, an amount supplemented by various provincial governments.

“Faced with funding at that level, I think CRA would have a very formidable hurdle to suggest that the Olympic movement does not provide a public service to Canadians,” Mr. Innes says.

Mr. Innes also points out that Olympic programs clearly benefit the health of young Canadians, are open to all Canadians, provide opportunities for growth and achievement at all socio-economic levels, and promote values enshrined in Canadian culture and the Charter of Rights.

“While Olympic medalists certainly do not deserve more favourable treatment than poets or violinists, there is no reasonable legal argument that they deserve to be treated worse,” Mr. Innes says. “Unfortunately, that is precisely what CRA’s present position does, treating them like second class champions.”